Competition Works

We were cheered by two big announcements this week that continue to bring Medicare into the modern age:

Part D. Competition in the new prescription drug benefit is bringing costs down for both seniors and taxpayers.

Overall costs for the Part D program are expected to be $110 billion lower over the next five years and a whopping $302 billion lower over the next 10 years than projected just last year.

Drug plan premiums for seniors are 40% lower than expected, down from the $37 a month that Congress had anticipated to an average of less than $24 a month.

The motto here: Competition works. Drug plans negotiated fiercely to get the lowest prices from drug companies so they could get their premiums down and attract more subscribers. And seniors are smart shoppers, seeking out the lower cost plans and finding the best value for their money.

Now, we need to move to bring more competition into overall Medicare where costs in the other parts of the program are rising by double digits. Part B premiums, which help seniors pay for doctor, lab, and outpatient services, will be nearly $100 a month next year.

Medicare MSAs: The Centers for Medicare and Medicaid Services announced this week a new plan “to make the increasingly popular consumer-directed plans available to Medicare beneficiaries.”

Medicare Advantage (MA) plans (the comprehensive health plans that seniors can choose to provide their health care) will be able to offer a new Medical Savings Account demonstration plan. The authority comes from legislation passed almost 10 years ago, which companies ignored, but CMS has written new rules to entice companies to participate.

The MA plans will be able to offer seniors cash accounts that rollover from year to year coupled with higher-deductible coverage that is expected to have lower premiums.

And this is on a fast track: The announcement went out on July 10 and applications are due July 21 for offerings next year. At a meeting we attended with the HSA Working Group yesterday, we learned that companies are indeed planning to participate. One expert observed that “a lot of actuaries are not going to be getting much sleep for the next week.”

Action on this new initiative, as well as the other consumer- and market-oriented innovations in Medicare, are directly attributable to Medicare administrator Mark McClellan’s leadership in making this happen. Kudos.

And Rhode Island has joined the growing list of states that are moving forward forcefully on health reform. Gov. Donald Carcieri signed 14 bills designed to do everything from banning junk food in school vending machines to lifting mandates on some insurance policies to make more affordable policies available to small businesses.

I haven’t yet read all 14 bills, but, not surprisingly, there’s some bad news with the good: The state will get much more heavily involved in deciding what health facilities will be approved – always driven by politics rather than market demand – and legislators just couldn’t help adding yet another coverage mandate for smoking cessation treatment.

But the good news is that the state will be more aggressive in making provider prices available to consumers. And, most importantly, health insurers will be able to offer policies that have fewer mandates and higher deductibles than current law allows to make policies more affordable for small businesses.

One common theme: Like Massachusetts, Rhode Island’s health reform package is bi-partisan. Republican Gov. Carcieri and Democratic Lt. Gov. Charles Fogarty both made health care a priority, worked with their friends in the legislature to pass their favorite provisions, and claimed credit for the new laws.

Expect to see more experiments like this as states get even more involved in health reform. And they are experiments: with governors and legislators closer to the problem and aware of different resources in the state, they can try out new ideas and help other states see what works — and what doesn’t.

THE FUTURE OF LONG-TERM CARE AND MEDICAID Author: Grace-Marie TurnerSource: House Committee on Small Business, 07/10/06

Grace-Marie Turner testified before a field hearing of the House Small Business Committee in Maryland on Monday, offering ideas about incentives for working-age people to plan ahead for their long-term care needs. She recommended that Congress encourage states to participate in the recently-expanded Long-Term Care Partnership program, create new federal and state tax incentives for people to purchase long-term care insurance, encourage the use of reverse mortgages, and enforce new laws that block affluent seniors from giving away their assets to qualify for Medicaid. She also recommended that a new Medicaid Advantage program be created for seniors who are dually-eligible for Medicare and Medicaid so they have the option of choosing from among competing private plans offering comprehensive, coordinated care.Full text: www.galen.org

BISMARK’S HEALTH PLAN Source: The Wall Street Journal, 07/07/06

German Chancellor Angela Merkel is not doing enough to fulfill her campaign promise to reform her country’s health care system, according to a Wall Street Journal editorial. “Financed though payroll taxes, it is constantly under-funded and has become a drag on the labor market,” writes the Journal. Chancellor Merkel’s new deal would raise contributions by employees and employers and would include few market elements. “Trying to keep the system largely unchanged but sprinkling it with a few market ideas won’t work,” writes the Journal. “[W]ith the government deciding the general contribution level and thus setting a price floor, no real competition can develop.” Full text (subscription required): online.wsj.com

Health Consumer Powerhouse has released the 2006 version of its Euro Health Consumer Index. This web-based index ranks 26 European health care systems on criteria ranging from patient rights and information to waiting time for treatment. Full text: www.healthpowerhouse.com

Lawmakers would not be wise to make changes that would model Medicare Part D after the Veterans Affairs system, writes Grace-Marie Turner in an op-ed for Stars and Stripes. “New and expensive drugs to treat rare disorders are seldom covered in government-run health plans,” writes Turner. “The VA drug formulary, the list of drugs the benefit covers, includes just 19 percent of medicines approved by the FDA since 2000. And it contains only 38 percent of drugs approved in the 1990s.” Seniors enrolled in the new Medicare drug program can take their business elsewhere if they are unhappy with their drug plans, but veterans don’t have that choice and often don’t have access to many of the most innovative drugs available today. Full text (pdf see page 15): estripes.osd.mil

A new Government Accountability Office study calls into question the accuracy and consistency of responses given by prescription drug sponsors to seniors inquiring about the new prescription drug benefit. Although many seniors found the process of sorting through the options for Medicare prescription drug plans confusing and complex, we feel this study adds unnecessary alarm and provides distorted information that only confuses seniors further.

While the study says that calls to 1-800-Medicare were answered in five minutes or less 96% of the time, the GAO said operators were only able to answer GAO’s questions completely and accurately 20 to 60% of the time. But the GAO asked for information that the call centers are not required to provide and which they may even be prohibited from providing, and which operators therefore were not trained to answer. And even answers that were correct were not marked as such if they didn’t meet the GAO’s narrow specifications. Full text (pdf): www.gao.gov

A three-year UnitedHealth Group study compared cost and utilization trends of people enrolled in consumer-driven health plans and found they were “more likely to be actively engaged in managing their health and making health care decisions” than those with traditional coverage. United studied 40,000 people with Health Reimbursement Arrangements compared with 15,000 others enrolled in PPOs from 2003 to 2005. The two sample groups were drawn from the same employers.

The study found that up to 5% more CDHP members sought preventive care services and that those with HRAs reduced the use of acute care services without adverse health effects or outcomes. The CDHP group had 22% fewer hospital admissions and 14% fewer emergency room visits, while the relative utilization of those services actually increased year-over-year among PPO members. Additionally, the report said that costs per member “decreased 3 percent to 5 percent in the CDH plan over the 2004-2005 period, as compared to their 2003 baseline level, while increasing 8% to 10% among PPO participants.” Full text: www.unitedhealthgroup.com

Two respected researchers have assessed who wins and who loses with Health Savings Accounts. They find that healthier patients come out ahead, largely because they get a bigger break from shielding their HSA deposits from taxes. They also found that the very sick come out ahead financially because the limits on overall out-of-pocket costs with HSAs are often less than limits on conventional insurance policies. But they observed that reducing cost sharing for “those high spenders who are responsible for a large share of overall health spending” could turn back the clock on lessons learned from the Rand experiment. The losers in their study were patients with mild chronic conditions who are likely to spend more with HSAs. But we believe these are also the patients who might respond best to incentives to become more involved in their care management and to seek out more economical treatment alternatives. Full text (subscription required): content.healthaffairs.org

Health Policy Matters is a weekly newsletter containing summaries of timely and informative studies and articles on free-market health reform. It features research and writings by participants in the Health Policy Consensus Group, articles of interest from the health policy world, and announcements of coming events. Health Policy Matters is published by the Galen Institute, a not-for-profit public policy organization specializing in information and education on health policy. For more information about the newsletter and our organization, please visit our website at http://www.galen.org/.

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